I have heard companies complain about the cost of target marketing and the question has come up more than once as to whether it is really necessary. Those holding the checkbooks would most likely say the answer is dependent on the cost; but that is a bad way to decide how to market. Sure everyone has a budget, but if you are looking at your budget strictly from cost you are only considering the front end, and you are most likely losing money, even if you don’t know it.
Let’s break this down in a simple way; let’s say your product or service is for homeowners, and that it does not apply to those that do not own a home. You can do an email campaign, or a direct mail campaign, or any other type of direct marketing fairly inexpensively if you do not target, so in many business owners minds, this is cheaper. But I am here to tell you, it’s not cheaper; sure you may have made a profit meaning you brought in more than you spent, but I say you lost money. Here’s why; according to the U.S. Census 65% of the adult population in the U.S. own a home, and that’s your customer right? The problem is by not targeting you are adverting not just to those that own homes but to the 35% that do not own homes as well. What does that mean? It that no matter what you’re sales end up being, whatever you spent, 35% of it was wasted.
Had you target marketed your front end cost would have been higher, however instead of reaching only a portion of your market you would have reached one hundred percent of your market, meaning your sales would most likely increase and your back end profit would outweigh your front end sales. Now there are products that do not need target marketing because they apply to the population in general, but that is exception rather than the rule. Most products or services have a specific target or targets which will naturally increase the level of sales. Don’t take my word for it; research target marketing and see what you find.
Recently we looked at how to prepare a budget for marketing. So let’s assume that regardless of what method you used, you now have a marketing budget. So now for the tough choices, how do you spend it wisely?
Well that’s a bit unrealistic. You will have plenty of ideas for how to spend your budget. Just by working out your budget you will probably already have decided what promotional activities you need to get involved in. But there is a big gulf between recognising that you need to “advertise” and deciding how you are actually going to do that. The challenges are also slightly different depending upon your type of business. If you are a well-funded start-up with a strong business plan that has been approved by banks and investors, your challenges may be the same, but your focus will differ to the small one-person business just starting out, which is probably self-funded with limited resources. Much of this article will be more relevant to these latter micro-business. Continue reading →
Last month Joe explained that setting a budget is essential before preparing a marketing plan. But how do you set a budget? What is a realistic spend on marketing?
For those of us working for others usually our budgets are set, or increase year-on-year, or based upon a calculation that says “it will cost you XX to do this so we will give you XX plus a bit more” (or more likely a bit less). But if you have a blank sheet of paper then how do you calculate a suitable budget? Continue reading →
I have been in business and a serial entrepreneur since 1988 officially, unofficially I started in 1979 moving lawns, pulling weeds, and washing cars… So suffice to say I’ve been at it for a while. Even so it ceases to amaze me how very little some small business men and women actually know about business. One of the biggest things that frosts my hide is the lack of understanding of what is needed for marketing. I teach both graduate and post graduate marketing classes; from intro marketing to advanced marketing theories and there is one thing I do in all of those classes; I ask a very simple question. “When creating a marketing plan, what is the first thing you need?” I get a myriad of answers, I get things like:
Being in the marketing industry I have experience dealing with just about every type of client there is and one of the biggest problems that I have seen with small businesses is that they are often unorganized, they are not goal oriented and they went into business without any solid goals. It doesn’t matter what size your business is it is absolutely imperative that you have a strategy, a strategy that should be created prior to opening your doors for business. I have seen too many people decide they were going to go into business and let’s be frank, anyone with a hundred bucks and a ball point pen can start a business; you go down to the county recorder’s office, you fill out the paper work for a fictitious name, you pay the fee, you go to your bank and open up a bank account and Ta Da you’re in business. If only it was that easy, it’s not. Below are the statistics of small businesses that started and businesses that closed between 2000 and 2004. These were years prior to the recession when the economy was in decent shape. As you can see nearly as many businesses close their doors each year as new businesses open their doors.
Starts and Closures of Employer Firms, 2000-2004
e = Estimate.
Sources: U.S. Bureau of the Census; Administrative Office of the U.S. Courts; U.S. Department of Labor, Employment and Training Administration.
I have dealt with hundreds of small businesses over the years who want to advertise and when asked what their marketing budget is they answer that they don’t have one, or ask what their quarterly or yearly sales goal is and you get the deer in the headlights look like I suddenly started speaking Latin. If you do not have a strategy you will very likely fail. Period. Having a business without a strategy and aimlessly spending money without any structured goals is like buying a car without an engine. It won’t work. Think of your business as a large piece of machinery with many different parts, all those parts need to be oiled, tuned, and maintained and before plugging it in and flipping the switch; engineers need to calibrate it and make sure everything’s been done right. The biggest mistake that I see from small businesses is the lack of a strategy, including a marketing plan and budget. Regardless of the size of your business it is important to create a roadmap of where you are, where you are going and where you want to end up and then to create a plan for getting there. Without this you are just bouncing around without any direction hoping that something works, and don’t get me wrong sometimes people get lucky, sometimes, but the majority fail because they did not plan ahead. In business, planning is everything.